Since launching six years ago, AngelList has shaken up the venture-capital landscape, creating new players on the industry’s traditional turf and giving rise to an alternative source of early-stage capital that gives founders more options and greater control over their companies, investors say.
I think that AngelList probably has had a small effect in Silicon Valley. I don’t think it’s had a large effect anywhere else. I don’t think traditional VCs feel especially threatened by AngelList. However, it does make micro-VCs up their game. If you are commodity money in a deal, might as well take it from an online platform where it might be easier to raise.
AngelList isn’t the only crowdsourcing platform out there. Additionally, some startups have used Indeagogo or Kickstarter to validate what they are doing before seeking funding from venture capitalists. The whole market is in flux constantly as innovation happens. A rising stock market usually creates more risk taking, which is good for crowdsourcing platforms. Additionally, if you are a potential angel that doesn’t live near a startup hub, online crowdsourced investing is a way to get access.
In Chicago, I haven’t heard of a lot of companies having success at raising a round on an online platform. I could be wrong, but I just don’t hear a lot of chatter about success stories. The platforms seem to be pretty ethnocentric when it comes to geography. I know companies that have tried to raise rounds, but I don’t think they have been very successful. It seems you still need that “bell cow investor” that will drive the process. I cannot speak for other ecosystems, but would love to learn about entrepreneurs success/failure stories.
Personally, I have perused the platform but never written a check. I prefer to do deeper dives into diligence, and build a relationship with the founders. I don’t want to be commodity money in any deal at seed or Series A.
I also don’t think that AngelList has displaced many angel groups. There are around 400 active angel groups in the US. The Angel Capital Association has a database, and also is a great source if you want to start one up.
I do think that online platforms have given more companies the ability to raise seed capital. That’s a good thing for everyone. I don’t see early stage financing as a fixed pie. The more seed stage companies there are, the better it is for society. Innovation moves us forward.
At the same time, I don’t think that crowdsourcing in any particular genre of finance is going to dominate the landscape. Crowdsourcing isn’t going to displace traditional bank lending for example. I also don’t see the demand for alternative assets like angel investing growing exponentially in the next ten years. Money is flowing out of hedge funds into passive investments. It’s hard to recruit angels. Platforms like Lending Club have had their problems.
The data is pretty messy on early stage investing. It’s getting better, but it’s hard to consolidate because it’s so fragmented. It’s also highly dependent on other factors, such as which years initial investments were made and what industry they were made in. It’s going to be hard to exponentially grow the sector until we have really solid academic data.
AngelList is 6 years old. The average holding period of a successful startup is 7-10 years. It used to be shorter, but the alimentary canal of exit is pretty full due to a lot of extraneous factors. Year 7, we should start to see some exits trickle in more regularly on AngelList. If people can make at least 2.5x their invested capital, AngelList should see growth.
It will be interesting to see if AngelList can muscle into Series A financings. That’s when more traditional VCs would feel it the most.